From Kardelen Lule (ADMD / MAVIOGLU & ALKAN, Turkey)
The corporate tax rate has been significantly changed by Law No. 7316 amending the Law on Collection of Public Claims and Certain Laws (“Law No. 7316”) published in the Official Gazette of April 22, 2021.
The rate previously determined for 2018, 2019 and 2020 was 22%. Article 11 of Law No. 7316 amended the corporate tax rates by adding provisional Article 13 to Corporate Income Tax Law No. 5520 (“CTL”), increasing the corporate tax rates to 25% for 2021 and 23% for 2022 on special accounting periods (the regular period is the January 1 to December 31), the stated rates are applied to the income of these institutes for the accounting periods beginning in the respective year.
According to the CTL, corporate income tax must be declared in March (of the following year) and payments are made in (up to) four (4) installments (each installment at the beginning of the financial quarter).
Although the corporate tax rate for 2021 is set at 25% as amended by Law No. 7316; the applicable rate for payment deadlines has changed due to the date the change was published. The tax rate is 20% for the provisional tax period 2021/1 and 25% for the periods 2021/2, 2021/3 and 2021/4.
Limitation of financing costs
With the amendment of Article 11/1 of the CTL by Law No. 6322 amending the Law on Collection of Public Claims and certain laws, published in the Official Gazette of June 15, 2012; It was found that in companies where the amount of debt financing of the taxpayer exceeds the equity of the taxpayer, the sum of the expenditure and cost elements such as interest, commissions, interest on arrears, profit shares, exchange rate differences and other similar indications are used , are considered non-tax-deductible expenses (“NTDE”) for the excess amount of debt financing at the rate set by the President, whereby this may not exceed 10%. It is worth noting that such effort and cost elements that are part of the investment costs are excluded from this provision.
The President has set this quota at 10%, which is to be applied from January 1, 2021 to the income from the taxation period (via Presidential Decree No. 3490, published in the Official Gazette of February 4, 2021). The Ministry of Finance and Finance published Communiqué 18 amending the general communiqué on corporate tax (serial number: 1) (“Communiqué”) in the Official Gazette on May 25, 2021, which sets out the procedures and principles for the application of this provision .
According to Article 11.13.1. des Communiqué, this limit on financing costs applies to taxpayers on the balance sheet. However, taxpayers who are subject to company accounts are excluded. These taxpayers are listed in the communiqué as follows:
- Pension companies operating within the scope of Law No. 4632 on Individual Pension Saving and Investment Scheme,
- Depository banks, investment banks, development and investment banks domiciled in Turkey that operate within the scope of Banking Act No. 5411, branches and financial holding companies in Turkey, such organizations domiciled abroad,
- Insurance and reinsurance companies that operate within the scope of Insurance Act No. 5684,
- Finance leasing, factoring, finance companies and savings finance companies operating in accordance with the agreements in the relevant articles of Law No. 6361 on finance leasing, factoring and finance companies,
- Institutes that carry out capital market activities within the scope of the Capital Markets Act No. 6362.
Examples are also included in the communique:
Example: (A) The total capital of Corp. is TRY 800,000 while the total external funding over the same period is TRY 1,000,000. The total funding cost for this period is TRY 100,000.
|(1)||EQUITY OF A CORP||Try 800,000|
|(2)||EXTERNAL FINANCING (SHORT-TERM EXTERNAL FINANCING + LONG-TERM EXTERNAL FINANCING)||TRY 1,000,000|
|(3)||TOTAL FINANCING COSTS||TRY 100,000|
|(4)||EXTERNAL FUNDING THAT EXCEEDS A COMPANY’S RESOURCES: (2) – (1)||TRY 200,000|
|(5)||WHEN CALCULATING NTDE. RATE TO CONSIDER (4) / (2)||20%|
|(6)||FINANCING EXPENSES FOR CURRENT EXTERNAL FINANCING (3) X (5)||TRY 20,000|
|(7)||FINANCIAL EXPENSES THAT ARE CONSIDERED AS NTDE (6) X% 10||TRY 2,000 T|
Taxpayers who are subject to a limitation on financing costs must determine whether they are subject to this limitation no later than the last day of the temporary tax period based on their balance sheets published in accordance with the Tax Procedure Act No. 213 in the Official Gazette of January 10, 1961.
According to General Income Tax Communiqué No. 217, published in the Official Gazette of December 27, 1998, the temporary (corporate) tax must be declared in the quarterly periods of the relevant accounting period. Accordingly, there are four (4) separate temporary tax periods for a billing period. For taxpayers whose accounting period is a calendar year, the temporary tax periods (quarters) are as follows:
- First (quarter) period: January, February, March,
- Second (quarter) period: April, May, June,
- Third (quarter) period: July, August, September,
- Fourth (quarter) period: October, November, December.
Tax returns can be submitted up to the 17th day of the second month after a three-month limited tax period until 11:59 p.m. Tax payments are made within the same schedule as the declaration. For example, the first temporary tax period can be declared and paid by 11:59 p.m. on May 17th. However, according to the notice on the Ministry of Finance website on Tax Procedural Circular No. 134 of the Tax Administration dated May 3, 2021, the payment deadlines for income and corporation tax for the first provisional tax period 2021 will be extended to the end of May 31. The reasons given for the extension were the applications submitted to the ministry and the curfew measures taken due to the Covid-19 pandemic.
Although temporary taxation periods are quarterly in the 3rd, 6th, 9th and 12th month, the monthly closing must be used as a basis for calculating the income to be reported. For example, the temporary tax for the third period is calculated by subtracting the temporary taxes paid in the first and second periods from the tax calculated on the income issued according to the January-September period ninth month-end closing were determined.
It is worth mentioning that there is no limit to the financing costs incurred in previous years. Those who do not meet the conditions for the limitation of the financing costs in the temporary tax periods will be subject to these limitations once the conditions are met by the taxpayer.
Early tax dividend distribution
Advance dividend distribution is defined as the amount that corporations distribute to their shareholders from the profit calculated in accordance with the quarterly interim financial statements and before such net income becomes final.
The advance profit regulation is changed with the general corporation tax communiqué No. 6 changed by the corporation tax communiqué (“Communiqué No. 1”) Article 15.6.6 “Advance payment of dividends”. Accordingly, withholding tax deductions are made on the dividends paid based on the legal status of the recipient. The deducted taxes are shown with the withholding tax return for the month in which the dividend payment is made. In this context, this period may not exceed the end of the accounting period containing the date on which the declaration for the relevant accounting period is to be submitted.
In the case of an advance dividend distribution, the provisions on the hidden distribution of profits through hidden income do not apply.
In the case of split distributions, the following points must be observed:
- Distributions are payable in proportion to the shareholding,
- Privileged shares are not included,
- If the shareholders owe the company in any way other than their unpaid capital, this debt will be deducted as a matter of priority from the dividend advance payment to be paid to these shareholders.
Accordingly, the distribution of advance dividends is possible within the framework of the special regulations mentioned in Communiqué No. 1 and above, and if in the periods of the 3rd, 6th and 9th or third quarter) and the general meeting of the company can resolve on the distribution of dividend advances .
The author is with ADMD / MAVIOGLU & ALKAN, Istanbul, Turkey.